The Small Business Administration (SBA) announced it would re-open the Payroll Protection Program (PPP) on Jan. 11, 2021. Initially, the reopening is limited to community financial institutions and lenders making “First Draw” PPP loans. A First Draw loan is a PPP loan to a business that has not already received a PPP loan. Those same lenders will be able to accept “Second Draw” PPP Loans on Jan. 13, 2021. A Second Draw loan is a new PPP loan to any business that has already received a PPP loan. Shortly thereafter, the PPP program will most likely open to all participating lenders for First Draw and then Second Draw loans.
The First Draw PPP loan application can be found here. The Second Draw loan application can be found here. The SBA is still working on a simplified application for loans of $150,000 or less.
Additionally, on Jan. 8, 2021, the SBA and U.S. Department of Treasury released two interim final rules (IFRs) related to the Consolidated Appropriations Act, 2021 (CAA). The interim final rule on the PPP as amended by Economic Aid Act consolidates the prior interim final rules and significant guidance in addition to incorporating the changes brought about in the CAA.
Furthermore, the SBA released the interim final rule on Second Draw loans which provides some clarity regarding the eligibility requirements of the Second Draw PPP loans. This IFR provides a definition for gross receipts. It defines “gross receipts” to include all income (ordinary and investment), except for the following: net capital gains (losses), amount of any forgiven First Draw PPP loan, “taxes remitted to a taxing authority if included in gross income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees), proceeds from transactions between a concern and its domestic or foreign affiliates, amounts collected as travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder, or customs broker. All other items, … investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.” The IFR states a borrower may use the accounting method that it normally uses. The IFR also noted businesses that are part of a single corporate group (majority owned, directly or indirectly, by a common parent) are limited to a total Second Draw PPP loan amount of $4 million in the aggregate.
For additional information regarding changes to the PPP among other stimulus benefits to note, please see SBA Part Thirty-One. A few highlights related to the PPP program include:
- New entities are now eligible to obtain a PPP loan, such as 501(c)(6)s, housing cooperatives, and destination marketing organizations, among other types of organizations.
- PPP borrowers may set their PPP loan’s covered period to be any length of time period between eight and 24 weeks to best meet their business needs for both first and second-round loans.
- The eligible use of proceeds list expanded to cover additional expenses, such as operations expenditures, property damage costs, supplier costs, and worker protection expenditures for both first and second-round loans.
- The CAA provides certain borrowers (who have not received forgiveness as of Dec. 27, 2020) with the opportunity to apply for an increase in their original loan amount. The initial IFR noted above provides clarification that borrowers are eligible to apply for an increase in their original loan amount if:
- A partnership did not include partner compensation in the payroll costs calculation, and
- A seasonal employer would benefit from the CAA’s expanded 12-week period to calculate its average monthly payroll costs.
- The IFR also allows borrowers that returned all or part of a PPP loan to re-obtain those funds and allows borrowers that did not accept the full amount of the PPP loan to take the remaining amount.
- As further clarified in the IFR released on Jan. 8, certain existing PPP borrowers that have spent all (including any additional loan funds that may be obtained, as noted above) prior PPP First Draw loan funds (prior to receiving a Second Draw) and meet the revised eligibility criteria may soon apply for a Second Draw PPP loan.
